Note: This article was written on Tuesday March 3, 2015
Market Anarchism is the doctrine that the legislative, adjudicative, and protective functions unjustly and inefficiently monopolised by the coercive State should be entirely turned over to the voluntary, consensual forces of market society. (Source: Molinari Institute)
Is Government necessary? People usually say that government is a necessary evil. The “evil” part is hardly refuted except by the most staunch statists. Let us instead concentrate on the "necessary" part.
There are a lot of liberal thinkers who believe that there should not be a governmental monopoly over food. That food is too vital for our survival to be left in the hands of the government. Milton Friedman says "If you put the government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand". But then the same liberal asks "why should the same logic not apply to the field of security". Security, in my opinion is far more valuable if not equally valuable than food. Why should we therefore leave aspects of our lives like law and security in the hands of the state? If the liberal is able to answer that question, he remains a liberal. If he find no reason why the state should have that monopoly he becomes an Anarchist. A different kind of Anarchist than one sees in the Classical Anarchist tradition but an Anarchist none the less. This form of Anarchism has had many names like "Anarcho-Capitalism" or "Market Anarchism" or "libertarian anarchism" or "individualist anarchism" or "Private Property Anarchism". All these names do not necessarily mean the same thing to different thinkers but what they have in common is the belief that even (and especially) the field of security and law should be provided by the market. The radicalism of opposition to this monopoly varies from Anarchist to Anarchist. For some of them it is a philosophical argument. They strive to reduce the power of the state and chose to think about security when there is limited government. Others believe limited government to be a myth.
There is no doubt that private security is possible. It exists today. The question really is if private security has the capability to replace the state in providing us security altogether. That is there would be no taxes and we would be protected by agencies that will rely on voluntary payments to protect its clients. I contend that not only is this possible but that the state and state supported security services are undesirable, tyrannical and downright inefficient.
The first argument that can be made against this state monopoly over security is that of the Calculation problem. "Police Protection" is not an absolute commodity. Just like how "food" and "shelter" are not absolute commodities. There are various different kinds of foods and so too are there various different kinds of protections that people need. There is on foot patrolling, cars patrolling, round-the-clock personal bodyguards. There can be different number of policemen assigned to patrol a certain block. Police also need various equipments and weapons like fingerprinting equipment, guns, bullet proof vests and patrol cars. There can also be different specialized forms of labour in the field of protection. We have uniformed guards, detectives and even spies.
All these different aspects of protection need allocation of resources, however government has no rational way to make these allocations because it is cut-off from being affected by consumer prices. The consumer of the protection service of the police are us but we don't get to pay for these services directly to its providers. Therefore we as consumers are not able to economically influence the decisions about the allocation of resources. Suppose my neighbourhood needs regular police patrolling due to high street crimes. However, I am not directly paying the police officers to patrol here, at least not officially. What I can do however is that I can start a petition, try to influence political process and try my best to get a policeman appointed to my street. This takes time and effort, and requires going through the inefficient bureaucracy to get any change. This is just like how there are various different kinds of foods possible. The farmer can grow rice, wheat, corn or so many different options and the price mechanism plays an important role here. If there is shortage of wheat, the price of wheat will tend to be higher and there would be more farmers growing wheat for more profit to counter this shortage of wheat. And just like how governmental interference like "Essential Commodities Act", "Price Caps" and outright monopolization of the production of food will cause malinvestment so too will government monopoly over protection cause malinvestment. The pattern of production of protection services will not tend to be according to consumer demands, that is our demands, but the demands of the political class who is paying them and interfering in the allocation of resources. It will not be what you could really call "People's police" because it is not the people's demands that have influenced their actions but those with political power. I don't think anyone can deny seeing this effect. We see that our politicians get 24x7 protection services but even after such hue and cry there is hardly any improvement in women's protection in Delhi. And this is not by accident. We are paying for the police through direct and indirect taxation, but we have no choice over the services of our protection. We cant directly hire police to provide protection according to our most urgent needs - our needs are decided by the people in power.
There are certain localities that don’t want anything to do with the police. And then there are certain people that need special protection like Jewellers when they are transporting Jewellery. Which of these services should cost how much? We cannot say that because their demands are not allowed to influence the price directly. So is the Jeweller paying more or less for that protection service? We cant say. When the allocation of resources in different spheres of protection is not decided by consumer preferences - they are decided by political preferences.
Another place where we observe this political effect is what laws the state really enforces. No matter how much the state claims that it enforces all the laws, it cannot enforce all of them - it is not god - and state laws are not natural laws. The enforcement of these laws require resources and on what basis does the state decide which kind of law to really concentrate on? Here too we find that enforcement of the law is not in accordance to the demands on the market but in accordance to politics.
There is also a role of insurance in the market of security. You may insure your property and pay premiums on it. In such a situation, the insurance companies get an economic incentive to provide the protection service. This service will be different from the state. The state police's main goal is to apprehend the criminal and the recovery of property comes second. But the insurance company would be primarily concerned with recovering property than catching the criminal. Because the consumer after all cares more about recovery than catching some criminal. Of course this is not always true, but monetary benefits of recovery mostly outweighs the psychic benefit of seeing the criminal caught. Also notice that an insurance company would be likely to replace the stolen object immediately and then begin its investigation. Whereas state police just doesn't care and pays little price for letting theft happen. Police really has no monetary incentive to catch criminals. All its incentives are internal, like promotion and reputation - which is again the reason why the police behaves according to political masters rather than the consumers, which is us. Insurance companies who are under contract to provide damage costs to the consumers would have incentive to recover as much of stolen property as possible. So in the kind of mechanism that we are talking about we allow competition to ensure efficiency, low price and high quality of protection services. Imagine the resources that we waste on wars that are not according to consumer demands but according to politically connected military industrial complex, being utilized according to their most urgent needs. We ultimately end up paying for all of those services but we get nothing of what we demand, and that is because of lack of choices. We are forced to fund them through taxes and therefore we lose our economic power to influence their actions.
The first thing we must realize that security is important but so is food, clothing and shelter. Should the government nationalize food industry? Think of the farmers who actually have to produce the food, what about their freedom? If you restrict their entrepreneurial freedom you will find that they will quit being farmers and try their luck elsewhere - and we see this happening that farmers are moving to urban areas because it is becoming increasingly hostile to do farming. The question of poor should not justify state's monopoly over security any more than it justifies state monopoly over food. We must however try to make security as cheap as possible so that the poor can afford it. If you pay attention you will find that private security is not abolished from the market simply because state exists. We know that private security agencies do exist and only the very rich are able to afford them. What might be the reason for high cost of private security? We find that state has severely restricted the capital investment in private security industry. You cannot simply start a private security firm, even if you have the capital. You need to get gun licenses, security licenses, state approval etc. You also cannot legally protect victims of state violence. People who are thrown off their lands. People who are arrested for victimless crimes. Their arrests cannot be interfered with. There are also certain standards that you need to follow, so you can't even start a primitive security agency that may cater to the poor. All that capital gets invested elsewhere and private security services never reach the poor. But even then we can answer that the very poor can be provided security through private charity, mutual aid or by security agencies trying to maintain goodwill among its customers - like several doctors who provide their services for free to the poor. If we had free market in security, capital would flow more freely into this sector and we would have lower cost security services - that the poor can afford.
And lastly we must remember that state police is not free for the poor. It might very well be that the poor would end up paying less to a private firm than they pay to the state in the form of direct and indirect taxes.
Next objection one faces to the concept of private protection agencies is a potential war. Wouldn't the security agencies keep fighting? Suppose your car gets stolen and the protection agency finds that I have stolen it. When it comes to retrieve the car, I have my own security agency which is ready to protect me. Now what we have here is two security agencies in conflict with each other. Your agency is convinced that I have stolen your car but my agency is either convinced that I have not stolen it or wants to protect me regardless. Would there be war? I don’t think so.
First of all, war is costly. The states go to war with each other because of their ability to tax us. The states earn their revenue for war not by being producers but by being parasites. There is also virtually no limit to how much the state can tax. So if it spends on military warfare no one in the state loses any private money. In fact, the weapons manufacturers stand to gain business from state spending on military. But a private agency will have to manage its expenses. It cannot tax to compensate. So it will be judicious in its use of weapons and therefore there will be a tendency to avoid war rather than seeking it. Perpetual war will cause them to increase spending on weapons and increase salary of their security personnel - which will cause them to increase their prices for consumers. In a market of competition they will start to lose customers to other cheaper agencies.
Secondly, War also tends to damage other people's property - people who are not involved in the conflict. State gets away with it because we don't hold it accountable. We have all accepted that collateral damage in state wars are normal. If India is at war with Pakistan then we accept it as normal that Pakistani citizens are attacked and vice-versa. We never hold states responsible because there is no private responsibility in that institution. The governments may change and its relationships may change but we continue the madness of unaccountability. But the collateral victims of a private war and their agencies would retaliate escalating the potential cost of war which they would have to pay for themselves! And if they try to settle it in the court of arbitration the settlement cost will be high too because there are more victims now and more damage to property to compensate. No private security agency can survive on the market if it gets into clashes regularly. If it is not funded by taxation, it needs some mechanism by which these clashes may be avoidable as much as possible. And this is where the concept of arbitration comes in - that is, private courts (discussed in next section).
People imagine the worst with private security. But somehow they imagine the best with state, even when facts are against the state. Our world is full of conflict it is all around us. There is no denying that. But in being afraid of a possible war between free security agencies not under a state with no legal authority to tax us, we are ignoring the damage done by the state to its own citizens. The number citizens killed or affected by bad economic decisions cannot be measured. But the number of people who have directly been murdered by their own government - a government that they all called as their own, is 262 million in the 20th century. In the 19th Century this number was 190 million. This term is called Democide and it does not include war. In the 19th Century war deaths were actually more than democide. In the 20th century however, war deaths were surpassed by democide. What we are therefore doing is that we are internalizing the conflict around us. We are hiding behind an institution that exploits us and we let it do that because we are afraid - afraid of all the uncertainties of the real world.
One usual argument that is made against private security agencies is an example like blackwater. This so-called private security agency provides most of its services to the United States. So this is not a security agency in a free market. Most of its revenue comes from doing the government's bidding. And it is worse, it has the freedom of a private agency that the government does not enjoy due to restrictions imposed on governmental institutions by various democratic movements. This is just like what we do with PSUs. Public sector undertakings are government owned private companies. They have the freedom of private companies but still enjoy government funding and contracts. When market anarchists say 'private' they specifically mean that which is not funded by taxation. Something that thrives on government funding is not private - it is an extension of the government. For example, we have the Indian Railways department that has the authority to run railway services and the government sets budget for the department. The government could very well have called the railway department as private and put it under contract instead of a budget. The situation would only be marginally different. The so-called private railways would be funded by taxation just like today.
So far we have discussed security services but we also discussed that protecting someone may involve coming into a conflict. How does this conflict get resolved? If there is no mechanism possible for this conflict to resolve without the state, then we might as well forget about free market in security. Because if there is a monopoly over arbitration and law, then all conflicts will be resolved by that monopolistic institution and the security agencies that it rules in favour of will become just like the state police - they may even be worse seeing how they are not bound by the sentiments of democracy. Freedom in arbitration and security go hand in hand. You can’t have a free market in one of these services and not have it in another.
A lot of writings and videos on this subject talk about polycentric or private law as it would be when fully developed - as if it springs into existence. But lets take a different approach. What is the meaning of Justice in a very primitive free society? Once we answer that then we can introduce the concepts of division of labour into it, and complicating the market system to get an idea of how justice system could have evolved if state violence had not been legalized in the eyes of the public.
Imagine a primitive society with no state or other macroeconomic institutions. In such a society suppose something of yours gets stolen. How will you get justice?
In this society, you must get justice for yourself. You will have to first find out who stole it. You will have to track that person down and then you will have to recover through the use of force what is rightfully yours. You might want to take something of his to either punish him or for compensation for your inconvenience (restitution). You also wouldn't want to over do the punishment - if you killed him for instance out of revenge you may be targeted by his friends. You will recover as much of your property as you can so as to not keep this conflict on going. But it is important to remember that you do have the right to recover your property yourself. You shouldn't need any permission from anyone else. Recovery of the property (and restitution amount) by you would be what we can call justice.
Now, there are some problems with this system (if there were not we wouldn't have evolved past it):
Now suppose a person or a group decides to study the art of tracking down thieves. This person could then be approached by you for help in tracking down the thief. These people are what we call "Detectives". Now why would a person do this? Because he gets paid for this job, like every other profession. Because he solves one of the problems of primitive justice. So once you find your property missing you approach a detective and pay him to find the thief. He finds the thief with proof and the rest of the story is as before with other problems still present.
A detective may not agree to recover the stolen item for you because he is not specialized in that regard. But suppose another person sees this problem and then trains himself in the art of recovery. This would require some tactical and physical training that neither the detective has nor do you. These people may band together to form a recovery agency which accepts a fee to recover stolen property. This fee can be compensated by the recovery agent when he recovers the stolen property plus the restitution. In fact on successful recovery of restitution you can probably cover your costs of the detective and the recovery agent.
Now the recovery agent would not like to recover something that was not stolen. What if you are lying to him? He would like some proof before putting himself at risk. And if there is proof then recovery may even be violence free as the thief would have no excuse when the recovery agent turns up at his door step. So the recovery agent will have to trust the proof that has been collected by your detective. This means that they will be seeing each other almost on a daily basis and there has to be some amount of trust that the recovery agent will have to place in the hands of the detective. This is where the reputation aspect starts to come in.
This system still has some problems though. First is that you might not have enough money to hire these services immediately. If a lot of your money gets stolen, the detective might not agree to work on a case that may lead to a dead end. Restitution is only possible during recovery - if there is no recovery the detective earns nothing. So he may refuse to work for you without being paid upfront. The recovery agent may also refuse if he has doubts that recovery may not be certain. Second problem that now arises is that what if, the thief also has a well trained person or an organization defending him and his innocence, like a defense agency, then there is a bigger conflict.
The first problem is solved by someone running an insurance company. You may agree to pay monthly premiums to the insurance company, and when your get robbed the insurance company may step in and provide you restitution before hand. This way you are not interacting with any detectives or recovery agent. You are simply paying premiums to the insurance company and they are replacing your stolen object as specified in the contract. This is like theft insurance.
Now do we need detectives and recovery agents with insurance? Well yes, because the insurance company doesn't like losses. If there are too many thefts the insurance company is likely to lose a lot of money. So in this case the insurance company, not you, will hire a detective agency to find the thief and they will also hire a recovery agency to recover the stolen goods. Even if you were robbed of everything you had, the insurance company would now be paying for the detective work and recovery because you have been paying its premiums according to the contract.
Notice that there is no arbitration occurring anywhere yet. But arbitration is possible in every step of the evolution of this system that we have discussed. Even in the primitive justice if you find the thief you may be able to get your stolen object by simply arbitrating with each other. It might not lead to a big fight or trial by combat. But let us instead think of why arbitration is needed in the most advanced system that we have constructed yet. So suppose the recovery agents of your insurance company contact the thief and ask for your property back. Suppose the thief refuses or pleads innocence. Well if the insurance company is very sure of the theft, it can still recover the stolen object by force. But that is not likely to happen. Even the state doesn't let that happen. Why? Because to a new onlooker, recovery is the same as theft.
Imagine if I see you taking some car that someone else has just parked my first thought would be that you are a thief who is stealing the car from the good man who just parked it here. But what I would be doing is assuming that possession means property. That since the object is in the possession of the person who parked it, it is his property. And most of the time this is true. But what if you were simply taking back the car that was car-jacked from you the day before. I don’t know that. So there is always the threat of public backlash against recovery because the public doesn't know if the object is being recovered or being stolen. How the insurance company may solve this issue is by having a public trial. They may say that if the accused wishes to defend himself he may come to our court (which is in fact no different than an office because it doesn't have the reverence of the state courts) and he may defend himself in a trial. Now here too the reputation of the court may matter a lot. So there might be a separate agency that specializes in creating this neutral environment for court hearings. Now suppose that the thief is not cooperative. The recovery can be done by the use of force now and there is less of a chance of someone else interfering. But here comes the big problem: Suppose someone does interfere or the thief himself hires a security agency to protect him. Now some people start to get the thought that there may be war between the private agencies. As discussed, war is not profitable unless it is funded by taxes. It depletes the resources of the private army and tends to make it bankrupt. If there is no concept of arbitrators, even then they may not go to war. A stolen object, most of the times, is just not be worth it. Even war hungry states do not go to war over petty theft. The insurance company is already earning from its premiums, why would it threaten its financial stability by going to war. But then no insurance/protection agency would like to be on this side of injustice. So there is a huge tendency for them to pre-assign an arbitrator amongst themselves. They are after all going to be dealing with each other regularly and it is better to have a pre-approved arbitrator to solve these disputes. Both these protection agencies will agree to abide by the arbitrator's decision before hand. A lot of people ask: why would the protection agencies settle on one arbitrator? Wouldn't each of them like to choose a biased arbitrator? This argument is given by those who accept that there must be a free market in security and reject free market in arbitration. They make a case that there should be a final arbitrator in case the private agencies do not agree to settle on a single arbitrator. But remember, you can’t have a free market in security and not have a free market in arbitration. And now we have seen that there is in fact an incentive for the protection agencies to choose a just and unbiased arbitrator. Because if a client of agency A is a thief today, a client of agency B can be a thief tomorrow. Agencies that refuse to settle on a particular arbitrator with start to pile up unresolved cases and their own customers will start leaving them. This way capital will start to flow towards agencies that are cooperative with each other and away from agencies which refuse to arbitrate their disputes. As the role of the arbitrator comes in when the security agencies want to settle their disputes, the idea of fake or biased courts is therefore laughable because it misunderstands the role of arbitration itself.
Returning to our example, the arbitration agency (which specializes in problem solving, and are known for their keen sense of justice) will be looking at the evidence just like a state court that does it today. Then it will announce the results to the interested parties. Suppose it finds that the accused was actually the thief then the security company gets out of the way and recovery is possible. If the accused still tries to fight back, there is no one to protect him vs the entire might of the protection agency. If he is found not guilty, he is paid restitution by your agency for all trouble caused and there is now an incentive for the insurance/protection agency to improve its detective work.
Now in a society where this type of distributed justice system has been functioning, you will find that there is a network of market relations where there are multiple insurance and protection agencies and there are multiple arbitrators who act as the disinterested third party for these various protection agencies. Which is why it has also been called a polycentric legal order as compared the monocentric order of the state justice system with the supreme court at the centre.
This was just one example of how disputes can be resolved in criminal cases. Hayek called markets as a process of learning. Who knows that in the process of learning we find better ways to resolve our conflicts? In some historical cases, in fact, private arbitration has existed without a private police enforcing it. Take for instance the mercantile courts that existed from middle ages up until recently. Their decisions were not enforced by any police. How they functioned was that if there was a dispute among two merchants and they took this to mercantile court and if one of them did not abide by the ruling - the court used to make that name public. If a reputable court says "This Merchant Smith made a contract with John and did not follow through. So if you are doing deals with Smith keep this in mind." this would be really bad for your business. So the enforcement was be done by fear of losing reputation on the market and through ostracism. Another example is Medieval Ireland which was one of the most advanced societies of its time. They had a similar system of voluntary law where they enforced criminal laws by ostracism. Criminals were not punished in the sense we punish them today - but they were declared to owe restitution money to their victims. They therefore became debtors and had to work to provide that money. If they refused they would be declared as outlaws and they would be ostracised from the entire system with no court system protecting them.
What is the State? There are two mutually exclusive means for a man to obtain wealth. One is the method of production and voluntary exchange, known as the “Economic Means” to earn wealth. Other is the method of robbery, through the use of violence, known as the “Political Means”. The “Political Means” is parasitic in nature as it requires previous production which can be confiscated. State is the organization of the political means. It is the systematization (and legalization) of predatory process in a given territorial area.
To properly systematize their predatory process, the state needs to maintain a legal order that provides legal means to confiscate wealth that others have produced. Which is the reason that the state claims to have a forceful monopoly over arbitration of disputes in its territory. The state, by the use of force or the use of stolen economic power, is able to override any dispute resolution that could happen outside its own system. The state claim to be, in a self-fulfilling manner, the final decision maker in its claimed territory.
When the state expropriates property (side note: I don't see any difference between expropriation and eminent domain) by land acquisition or by direct and indirect taxes it is able to defend those actions by law. At some point the predators, the mafia or the thugs realized that their predation is better protected if it was legalized. If they simply had control over the general perception of what is legal, they would be able to legalize their predatory process. It is like we are being forced to accept only one protection agency that claims to have the power over final arbitration even in cases where the agency is itself in conflict. In the cases of state vs you, the state is the arbitrator. If a state agents wrongfully detains you any court case that you can do will happen in the state courts using state law which mostly protects the state agents from repercussions of their actions. A policeman murders someone while doing their job is treated differently than accidental manslaughter by a private citizen. And if you were wrongfully convicted, there is no compensation that could be given because the state owns nothing - it loses no private money if it compensates you. There is no incentive to be more careful while convicting people. All compensations for the wrongful actions of the state are decided in the state courts and are paid using tax money. There is no private responsibility in the institution known as the State.
How are the judges selected? It is the general perception of the public that Judges are above the corruptible system and that they provide the various checks and balances on the corrupt politicians. But aren't the judges themselves appointed by the corrupt politicians? Does this not also bring politics to the judicial appointments? It is also a general understanding of the public that the judicial system is apolitical and objective that keeps a tab on the functioning of the law. However, isn't the law subject to modification by the same corrupt politicians which these judges have to uphold according to the law? (For more on this read "The myth of the rule of Law"). Judicial appointments have to be political rather than objective or through markets. Judges aren't necessarily chosen according to their wisdom and efficiency. There are many wise and efficient prospective judges - many of whom were lawyers for decades. How then, if not politics is this appointment done? The fact that judicial appointments are political is something that people know, but are afraid to say.
The state courts are a monopoly. Should a state court in a locality go corrupt, oppressive or inefficient - the citizens have no recourse. In a free market in courts, there will be many courts who will act as arbitrators - and they will have to cater to their customers demands just like any other market institution. Since they are chosen by various parties in disputes, the selection of judges will be in accordance with those parties in dispute. As in every other sphere of economic activity, this process will tend to ensure efficiency in arbitrators. While the state judges are politically selected, a political private judge will have hard time finding clients. The crucial difference is that the state courts are funded by taxation, so the consumers have little effect on their judgement. While the private courts will be paid by the consumers who are using them.
Laws that the State Justice system upholds are not “discovered” on the market. Law in a free market would be a function of the arbitrator whose purpose is to resolve the conflict. In such a process he would discover that there are some laws that could be written down and looked up for his reference when resolving disputes. Big libraries of past arbitrations may exist where the arbitrators could study and understand how the past arbitrators could have resolved this issue. In such a society Law would simply be patterns of past arbitration. But the state law is not discovered on the market the same way. It is legislated. Assuming that the legislative body has the good interest of the public in their hearts (which is a big assumption that is obviously not true), how does the legislators know what laws best resolve the conflict between the people? As a result many of their laws create conflict rather than resolve it. There are so many cases in the courts, many of whom are there for victimless crimes. These laws do not resolve conflicts they create them. These laws do grave injustices. The primary duty of the state judge is not to conflict resolution but it is to uphold the law. Resolving conflicts is secondary. While for an arbitrator in a free market, his primary motive is to resolve conflicts!
Due to these inefficiencies of the state justice system, they have becoming more and more clogged up and they are trying various means to overcome that. Fast track courts are one example but we know that didn't work out as much as we thought. In a free market such fast tracking would tend to happen automatically. And it wouldn't happen politically but according to the needs of the consumers. The insurance/protection companies would find that a lot of cases of a particular type are coming in. They may themselves hire experts in this field to minimize their losses and invest in protection and arbitration of these criminal activities. Just as market tends to utilize capital goods to their most valued ends as demanded by the consumers, a free market in protection would tend to concentrate on punishing crimes that are in most need of being punished. Compare that to today where we get fast track courts by way of protests - which is again a political method.
While the state has a hierarchical court structure that acts as a bottleneck to justice where the people who want to drag on cases get a free socialized hand. Arbitration services on a free market cost private money. Longer a court case in a free market, more is the cost involved which the loser of the court case has to pay. The incentive to drag on a case or to file frivolous cases nearly disappears. People who drag on court cases or file frivolous ones usually expect to lose in a speedy trial. A free market system, lacking the subsidy through taxation, would penalize such litigants and making them pay not only the court fees but also restitution to the other party whose time has been wasted.
It is not surprising that internationally there is a booming market of private arbitrators. And there is huge lobby that wants to pass laws directing the court system to not interfere in private arbitration. That if private arbitrators pass a judgement on willing participants, then the state court should respect that decision - otherwise the arbitration would be meaningless. So while still having elements of monocentricity, the markets are trying to break free of the state.
How a free market could deal with a corrupt court and/or protection agency? We have to realize is that this fear of corrupt courts is something that we have got from the state courts not some courts on the free markets. If a state court goes corrupt, you don't have much choice in the matter. Corrupt state courts are able to remain in operation because of a few reasons: First is because the courts have able to maintain a public image of superiority (rather than effectiveness) by advertising themselves as "public courts". Private courts on the other hand lack this public image of "people's court" so their decision cannot be passed of as "for the greater good". Suppose that I am a rich outlaw and I grab a land from some villagers. Then I setup a court and acquit myself of this act. In a private law system, this decision of my corrupt court will have no value. Arbitration was not done and this court would not be recognized to have any real value on the market. Unlike the state police which has to follow through the decision of the state courts, in free market anarchy the private protection agencies do not have to follow the decision of an arbitrator that is not chosen or accepted by them. The protection agency that the villagers may form or contract will simply not accept the corrupt court's decision. The same is not true for the state court, which hides behind the land acquisition law and upholds the same act of land grabbing by rich industrialists, who would be considered as outlaws unless the said act was done by way of government. The reason this is so is because the state has a special place in the minds of the people - which is what we are trying to combat. Bad and corrupt people will always exist - but should we give them the state to legitimize their act of theft?
People usually say, well we have designed this system of checks and balances that keep the state justice system from going corrupt. That is just wishful thinking. Any checks and balances that you create will be internal to the state organization. Everyone from the police, to legislators, to judges and even public defender earn their income from taxes. They all have the same source of income. No matter the checks and balances, which are internal, as long as their source of income is the same those checks will not work for situations that may threaten their own earnings. And if you see, most internal checks and balances are simply to take care of situations where one member of the state tries to cheat other member of the state of their power. These checks and balances are just like the internal checks and balances of a corporation, say IBM. Would you accept one department of IBM arbitrating a dispute between you and another department of IBM? Obviously not. But the state has a very good ideological stronghold that allows it to get away with it.
On the other hand market provides what we can call external checks and balances. The private protection agencies have to compete with each other to get market share from the consumers voluntarily paying for their services. There is actually real economic incentive for an agency to expose other agencies when they try to go corrupt and hoodwink the people. You can write checks and balances on paper all you want, but it is real economic incentives that will actually make people keep a check on each other.
Certainly, you’ve always got some sort of advantage if you’re rich. It’s good to be rich. You’re always in a better position to bribe people if you’re rich than if you’re not; that’s true. But, under the current system, the power of the rich is magnified. Suppose that I’m an evil rich person, and I want to get the government to do something-or-other that costs a million dollars. Do I have to bribe some bureaucrat a million dollars to get it done? No, because I’m not asking him to do it with his own money. Obviously, if I were asking him to do it with his own money, I couldn’t get him to spend a million dollars by bribing him any less than a million. It would have to be at least a million dollars and one cent. But people who control tax money that they don’t themselves personally own, and therefore can’t do whatever they want with, the bureaucrat can’t just pocket the million and go home (although it can get surprisingly close to that). All I have to do is bribe him a few thousand, and he can direct this million dollars in tax money to my favourite project or whatever, and thus the power of my bribe money is multiplied.
Whereas, if you were the head of some private protection agency and I’m trying to get you to do something that costs a million dollars, I’d have to bribe you more than a million. So, the power of the rich is actually less under libertarian system. (Source: Roderick Long's Responses to 10 Objections)
Another objection that is usually given is that what if the protection agencies decided to band together and form a state. That they all will refuse to protect against theft if it was done by a select group of people for some select purposes, like taxation. In such a situation we would again have systematized the predatory process. What can be done in such a situation? Well nothing. There isn't some magic system that grants us permanent liberty. It is ultimately compliance of the subjects of predation that makes it possible in the long run. What we need to ask is whether such collusion is less possible in what the general population perceives to be private sector than public sector. After all even the public sector isn't completely a cartel. The police plus army make up the entire might of the state. Why do they continue to let some politicians with no guns boss them around? A military coup is not unheard of but it doesn't happen all the time. Again it comes down to public perception of what is acceptable and what is not. A private defense agency does not have the authority to tax. Its taxation would be considered robbery.
One of the crucial factors that permits governments to do the monstrous things they habitually do is the sense of legitimacy on the part of the stupefied public. The average citizen may not like—may even strongly object to—the policies and exactions of his government. But he has been imbued with the idea—carefully indoctrinated by centuries of governmental propaganda—that the government is his legitimate sovereign, and that it would be wicked or mad to refuse to obey its dictates. It is this sense of legitimacy that the State’s intellectuals have fostered over the ages, aided and abetted by all the trappings of legitimacy: flags, rituals, ceremonies, awards, constitutions, etc. A bandit gang —even if all the police forces conspired together into one vast gang—could never command such legitimacy. The public would consider them purely bandits; their extortions and tributes would never be considered legitimate though onerous “taxes,” to be paid automatically. The public would quickly resist these illegitimate demands and the bandits would be resisted and overthrown. The special characteristic that distinguishes governments from other agencies of coercion (such as ordinary criminal gangs) is that most people accept government coercion as normal and proper. If I yell 'Stop, thief!' at a stickup man escaping with my wallet, the bystanders may or may not help, but they will at least recognize the reasonableness of my act. If I yell 'Stop, thief!' at a tax collector, leaving my house after informing me that he has just frozen my bank account, my neighbours will think I'm crazy.
Government is an agency of legitimized coercion. If the institutions which replace government perform their functions without coercion, they are not governments. If they occasionally act coercively but, when they do so, their actions are not regarded as legitimate, they are still not governments. (Source: David Friedman's The Machinery of Freedom)
